SaaS Interviews with CEOs, Startups, Founders
He hit $120m in ARR Then Sold $70m Unit for $250m, Today His Secrurity SaaS is Cash Rich... whats next?
01 Nov 2023
Chapter 1: How did Code42 reach $120 million in revenue?
Guys, last year, Code42 with their combined products hit $120 million of revenue. They sold off a $70 million revenue stream for $250 million to a private equity group. Joe's now in a very good defensible position with a bunch of cash on the balance sheet. And the product left behind, which is a product they're very excited about at Code42, doing still $50 million of revenue.
Chapter 2: What led Code42 to sell a $70 million business unit for $250 million?
That was a year ago, targeting 20% year-over-year growth. We'll put them, if they hit it, at $60 million in ARR this year. We'll see what happens there. We've got 800 customers on that product, several paying more than a million per year, which is great.
Chapter 3: What is the current financial status of Code42 after the sale?
220 folks on the team, 30 quota-carrying reps as they continue, again, to build products here to make sure that internal employees don't accidentally or intentionally take files from your company into their next gig. Hey, folks. My guest today is Joe Payne. He's the president and CEO of Code42, a leading data security company that focuses on reducing the risk of data leakage from insider threats.
With more than 20 years of experience as CEO, he's a proven track record leading high-growth technology companies over a long period. Previously, he served as CEO of Eloqua, eSecurity, and eGrail, and as president of iDefense. Joe, you ready? Take us to the top. Let's go. All right.
So Code42, I guess, help us understand how you're helping big, I assume, SaaS companies or companies in general prevent insider threats. Is it social engineering? Is it team training? Is it code exclusively? What is it?
Yeah, it's really interesting, Nathan. A lot of security is focused on the external threats. It's on the bad guys on the outside. And that's It's easy in the sense that you can, when somebody tries to breach your network, they are a bad person and you can hit them with the hammer and you can isolate their network traffic or their machine or something like that.
And security people are really attuned to those kinds of threats and they're growing and they're a big deal and we need to pay attention to them. However, if you look at what actually happens in terms of data loss in an organization,
most data loss actually comes not from external actors, but from insiders, from employees, from contractors, sometimes malicious, sometimes accidental, sometimes sort of in the middle. And so what we see is that about 60% of employees admit that they took data from their last company to help them in their current job. And that's the 60% that admit
And our data pretty much shows that it's almost 100% of people, especially when they leave a job, take a bunch of data with them. So we founded this company sort of inside another company. We founded this product called Insider. We built it from scratch starting about five years ago to really tackle that problem and give visibility for security people into, hey, who's moving stuff to Dropbox?
Who's putting stuff on a thumb drive? Who's opening up a window in Gmail and emailing themselves some source code? customer list or things like that. And so we built this product to give great visibility. And also, you know, we're people that like building great cultures. So part of what we've come at this is with the strategy to help course correct employees and contractors to not do
things they shouldn't do, maybe not go against their, you know, not be their worst self and take a bunch of things they shouldn't. And so we provide part of what we do is also provide a lot of education and positive reinforcement for people to do the right thing. So that's a key part of our strategy also.
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Chapter 4: How does Code42 prevent insider threats?
Oh, no, no. The average is closer to 80 bucks a seat. So, you know, there's, There's companies that are paying us more than that, obviously. And there's companies that buy 120,000 seats, they get a better price, as you would expect. So it's all over the map. But we have a number of multimillion dollar a year customers, for sure. And this is a multimillion dollar problem.
Our research shows that the average breach costs an organization $16 million. So a big company is going to pay a lot of money if they have a breach from an insider. So we're a small drop in the bucket compared to that.
Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of FounderPath. Check this out.
I'll show you how you can access this in a second, but you log in, you connect your Stripe account, you see your valuation real time, you can see what it changed over the past 88 days, and even set goals for valuation this year. Now, the secret to valuation is there's many different ways to value a SaaS business.
So the reason you're going to see three or four different valuations inside of your founder path dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're going to get a different valuation. A VC is going to pay a different valuation. Private equity firm is different. If you're going to do a minority sale, that's different.
And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. So the teal is what a VC would pay. Yellow is what private equity. And red is if you sold the whole thing outright. Now what's cool about this is this is not built off random data. Again, you guys hear these interviews on YouTube.
All these data are built from real-time valuation data points founders share with us on the show. So traction, 1.2 million. Seed round, 3.7 raised. They sold 22% of their business. Go in here and filter by the event. Maybe you only want to see companies that have sold the whole business already. Well, here are a bunch that have been acquired, the valuation and the multiple.
Maybe you're going out right now and you're raising your seed round. Well, go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger data set of SaaS valuations than what you can get now inside of FounderPath. And we're thrilled to bring it to you.
All right, we're going to go back to the YouTube video here in a second. But if you want to check this tool out, if you want to jump in and sign up, you can check it out for free to get your valuation at this link. This link, founderpath.com forward slash products forward slash valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here.
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Chapter 5: What is the pricing model for Code42's security technology?
So we were $120 million. We got down to $50 million. So that's what's... our belief once we got to 50 million is we should focus entirely on this new product and we should sell the crash.
I see. Okay. This makes loads of sense now. Got it. Okay. And so where do you think the code 42 product will end this year in terms of revenue? I mean, do we get up to 55, 60? You think we have three more months left in the year?
We'll see. We got some really big deals in the pipeline. And so we'll definitely grow this year. And I don't want to jinx it, so I'm not going to give you any actual numbers. You'll have to come back next year for that story. But it's been a pretty exciting process. I think the thing that's most exciting for us is the number of security companies that use Code42 today.
How many folks use you today?
Well, we have over 800 customers today. They're paying, right? on paying customers.
That's the only kind of we have. Um, and some people, some people get creative there and say, well, they're free customers, you know?
Yeah. Yeah. No, no. We, we, you know, it's interesting because we, our product requires a lot of, uh, you have to install our product. You have to put, there's a sensor that sits on the end point. There's no sort of PLG model where the average person could just download it themselves.
Also, because we're looking at what insiders are doing, there's also no natural growth for an insider to say, hey, I want to put an agent on my machine to see how I'm exfiltrating my own data. In fact, most insiders don't want that on the machine at all. Because they want the opportunity when they leave, if they need to, to take things with them. So I mentioned security companies.
There's probably 30 security companies using Code42 today. And they're the big names in this space. It's people like CrowdStrike and Okta and Ping and Rapid7 and Splunk and Cisco. And so we have really, really good customers. And they're the smartest people in security, and they're using us to solve this problem.
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Chapter 6: What is the target customer profile for Code42?
Seven.
Okay. And situation married, single kids.
Married four kids.
Wow.
Been married. I've been with the same woman for 40 years.
Wow. That's impressive. And how old are you, Joe? I'm 58. Last question. Something you wish you knew when you were 20 years old.
how important culture is to the CEO job.
That's awesome. Guys, last year, Code42 with their combined products hit $120 million of revenue. They sold off a $70 million revenue stream for $250 million to a private equity group. Joe's now in a very good defensible position with a bunch of cash on the balance sheet and the product left behind, which is the product they're very excited about at Code42, doing still $50 million of revenue.
That was a year ago, targeting 20% year-over-year growth. We'll put them, if they hit it, at 60 million in ARR this year. We'll see what happens there. We've got 800 customers on that product, several paying more than a million per year, which is great.
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